Five sheep with ovine pulmonary carcinoma were markedly dyspneic and had sporadic coughing; two had copious watery nasal exudate. In four, lesions consisted of multifocal nodules of neoplastic cuboidal epithelial cells in acinar or papillary patterns. Electron microscopically, cells had microvilli, tight junctions, and cytoplasmic lamellar bodies typical of alveolar type II cells. One sheep had a single lung tumor of nonciliated bronchiolar epithelial cells. Vacuolated alveolar macrophages surrounded adenomatous foci. One sheep had a metastatic lesion in the caudal mediastinal lymph node. All sheep had histologic lesions of lymphoid interstitial pneumonia (LIP, ovine progressive pneumonia) consisting of peribronchiolar and interstitial lymphoid hyperplasia, and fibromuscular proliferation; all had serum precipitating antibodies to ovine lentivirus. Lung fluids or tumor homogenates contained a 26-kd peptide that crossreacted with a primate-derived type D retrovirus as detected by immunoblotting or interspecies competition radioimmunoassay. Ovine lentivirus was isolated from concentrated lung fluids or tumor tissues of four sheep tested and from tumor cell DNA of one animal transfected into ovine muscle cells. These studies document the presence of type D-related retrovirus antigen in ovine pulmonary carcinoma (OPC) in the United States and indicate that lentivirus-induced LIP is a lesion frequently associated with this disease.